In the matter of M/s J.M. Morgan Stanley Retail Services Pvt. Ltd.
The Securities and Exchange Board of India
Before Mr A.K. Batra, Whole Time Member
Decided on June 2, 2004
Relevancy of the case: Legal recognition of electronic records.
Statutes & Provisions Involved
- The Information Technology Act, 2000 (Section 4)
- Securities and Exchange Board of India Act, 1992 (Section 4)
- Securities and Exchange Board of India Regulations, 2002 (Regulation 13)
Relevant Facts of the Case
- Morgan Stanley Retail Services Pvt. Ltd. (JMM) is an incorporated entity and a member of the Stock Exchange, Mumbai having SEBI Registration No. INB011054831. The Securities and Exchange Board of India inspected the books of accounts, documents and other records maintained by JMM in the second week of November 2000. JMM was also asked to furnish information regarding its market activities in the years 1999-2000 and 2000-2001.
- Based on the violations observed during the inspection, vide an inquiry order dated January 22, 2002, SEBI appointed an Enquiry Officer to initiate inquiry proceedings against JMM. The Enquiry Officer issued a show-cause notice to the broker on February 03, 2003, as per Regulation 6 of SEBI Regulations, 2002. Upon the conclusion of the inquiry proceedings, the inquiry officer submitted his report dated September 11, 2003, in which he recommended a minor penalty of suspension of the certificate of registration of JMM for three months.
Prominent Arguments by the Advocates
- Regarding the obligation of a stockbroker to maintain duplicates of contract notes, it was stated that the issue of maintaining copies of contract notes did not extend to vyaj badla bills. However, the JMM contended they were maintaining duplicates of vyaj badla bills in the electronic form and thus had complied with the requirement of preserving duplicate bills.
- It was submitted that there was no statutory requirement that such maintenance of duplicate bills had to be in physical form only. They stated that the maintenance of bills in electronic form constituted adequate compliance with the above requirement. The argument was strengthened by the overriding provisions of Section 4 of the Information Technology Act, 2000.
Opinion of the Bench
- The adjudicating officer agreed with the contention of JMM that there is no statutory requirement that such maintenance of duplicate bills had to be in physical form only. The former observed that the maintenance of bills in electronic form constitutes adequate compliance with the requirement.
- The Adjudicating officer reduced the penalty as proposed by the inquiry officer. The former said that a warning would be adequate under the Sec 4(3) of SEBI Act (1992) r/w Regulation 13(4) of SEBI Regulations (2002).